Priority Appraisal and Mortgage Services

Appraising FEMA 50% Rule

Homeowners wishing to renovate, improve, update or otherwise upgrade their dwelling in Florida flood prone areas have an extra hurdle to cross.  FEMA also known as Federal Emergency Management Agency has limitations that are administered by local jurisdictions. When a homeowner decides to renovate a kitchen, add a second story or make any significant improvement the FEMA 50% rule will govern how much money can be allocated to improvements at any given time. When a General Contractor is used to handle the construction, the homeowner will retain an Appraiser to develop an appraisal specifically for FEMA’s review. The General Contractor will present the appraisal to the local jurisdiction, so they can secure the appropriate permits.

What qualifies as eligible for the 50% rule? The appraisal will breakdown the replacement cost new of the dwelling. Depreciation is then subtracted from that figure and 50% of that figure is what is typically allowable for improvements or renovations. In a nutshell it sounds simple but consider this…A recent sale in your neighborhood that is comparable to your home sold for $300,000. This sale, along with at minimum two more will be compared to your replacement cost estimate and they need to be similar. This is where the limitations typically begin.

Let’s say the land value is $100,000 (it’s a waterfront lot) and the depreciation is $100,000 (the structure is older). There are lot improvements $20.000(landscaping, lighting, utility connections) and a detached shed and deck $10,000. The eligible amount to consider based on these numbers equals $70,000. Fifty percent of $70,000 is $35,000.

The scenario is oversimplified as the cost approach to value is considered primarily in a FEMA appraisal. Calculating depreciation can be subjective and the numbers may look favorable. The snag in the process can often be the support of the sales comparison approach to value. At minimum the local jurisdiction will be looking for an equal land value to that assessed by the County Appraiser’s office. The evaluator will likely have a construction background, usually a licensed contractor and will be familiar with building costs and cost resources.

FEMA 50% Rule

FEMA Appraisals

The process can be trying to say the least. It is important to hire an Appraiser who specializes in this type of appraisal. The appraisal you received for securing a loan is unlikely to suffice for FEMA. In the end you may need to structure the renovations in stages to take full advantage of the acceptable allotment.

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